Neocloud stocks including CoreWeave, Nebius, and IREN have lost more than 30% in October, while credit default swap spreads on Meta, Nvidia, and Oracle hit all-time highs and SK Hynix pulled Solidigm's planned IPO amid market volatility.
The artificial intelligence build-out is showing mounting signs of financial strain, with neocloud stocks posting steep October losses, credit default swap spreads on major tech companies reaching all-time highs, and SK Hynix abandoning plans to take its Solidigm storage unit public.
The Nasdaq ended the week down 0.7%, capping a bruising stretch in which concerns over the AI infrastructure trade weighed broadly on technology shares. Among the hyperscalers, Alphabet was the worst performer, falling 6% ahead of its third-quarter earnings report, while Microsoft and Amazon each shed less than 1%.
The sharpest pain landed on the neoclouds. Shares of CoreWeave, Nebius, and IREN all fell sharply this week, pushing their October losses well past 30% each. CoreWeave's credit default swap spreads widened beyond 11% — a level generally viewed by markets as indicating distress — while yields on the company's 2031 and 2032 unsecured notes climbed above 15%.
"What investors are doing is throwing every baby out with the bathwater and saying anyone who is a neocloud" will be devalued, Roundhill Investments CEO Dave Mazza told CNBC's "Squawk on the Street" on Thursday.
The stress extended beyond U.S. borders. Shares of Elice Group, a South Korean cloud provider, dropped 30% on their market debut on Tuesday. Australia's NextDC plunged 39.5% on Wednesday after the data center operator cut its annual earnings forecast.
Even investment-grade mega-caps are not immune to hedging pressure. Spreads on Meta's five-year credit default swaps reached an all-time high of over 124 basis points this week. CDS on Nvidia and Oracle also touched records, with spreads hitting 126 basis points and 343 basis points, respectively. Oracle's stock has lost more than one-third of its value this year and now faces the risk of a credit rating downgrade, the company said.
Meta's own week was particularly turbulent. The company's stock fell 7% on Thursday after it reported negative free cash flow in the third quarter of over $2 billion. Meta also raised the floor of its full-year capital expenditure guidance to $135 billion from $130 billion and disclosed plans to spend approximately $825 billion on various leases and contracts over the coming years, with more than $450 billion of those leases structured as non-cancellable take-or-pay agreements.
John Williams, who leads the derivatives practice at law firm Milbank LLP, said investors are pursuing multiple avenues beyond CDS to manage their exposure to the AI trade. "There's so much investment going into it that it's just very appropriate to look for risk management tools, completely regardless of whether you're bullish or bearish," Williams said.
On Thursday, SK Hynix confirmed it was withdrawing the planned IPO of Solidigm, its U.S.-based NAND and SSD storage subsidiary, citing market volatility. SK Hynix acquired Solidigm from Intel in 2021. "While an IPO was expected to ease investment burdens and expand capacity for shareholder returns, the review has been discontinued in light of market conditions and share price trends," the company said in a release.
Analysts at Gartner predict that 80% of neocloud companies will either cease operations or be absorbed by larger players by 2030, reinforcing concerns that the current field of AI infrastructure operators is too large to be sustained by available capital.
Nvidia CEO Jensen Huang pushed back on the bearish sentiment at a company conference in Berlin this week. "Demand for the neoclouds is off the charts," Huang told CNBC's Arjun Kharpal, adding that capital availability — not demand — is the binding constraint. "The demand of the capital is much greater than the availability of the capital. That's going to get solved."
Whether markets share that confidence will likely hinge on upcoming earnings reports from Microsoft and Amazon, both of which are scheduled to report next week and whose results could either ease or amplify the current turbulence around AI infrastructure spending.
Sara Montes de Oca is the Editor in Chief of TechEchelon. Previously a correspondent and producer in Washington, D.C., covering business, finance, and politics.
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Meta shares fell roughly 7% Thursday after the company reported negative free cash flow of $2.12 billion in Q3 and raised the floor of its full-year capital expenditure guidance to $135 billion, stoking wider credit-market concerns about AI infrastructure spending.
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